Q3 2023 Navient Corporation Earnings Call
Good day and welcome to the Navient third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
One one on your telephone you will then hear an automated message advising your hand is raised.
Withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speaker today Gen areas head of <unk>.
Relations. Please go ahead.
Thank you Abigail.
Good morning, and welcome to not an earnings call for the third quarter of 'twenty, we agree.
With me today are Dave yelling out in Seattle, and Joe Fisher CFO after their prepared.
Paired remarks, we're going to open the call up to questions.
You can view and download presentation slides, including slides you may find useful during this call are not even dotcom wash investors.
Before we begin keep in mind, our discussion will contain predictions expectations forward looking statements and other information about our business that is based on management's current expectation as of the date of this presentation.
Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors listeners should refer to the discussion of those factors on the company's Form 10-K, and other filings with the SEC.
During this conference call, we will refer to non-GAAP financial measures, including core earnings adjustable tangible equity ratio and other various non-GAAP financial measures that are derived from core earnings our GAAP results and a description of our non-GAAP financial measures can be found in the third quarter of 2023 earnings release, which is posted on Navient docs.
Question Duffy.
You'll find more information about these measures beginning on page 18 of Navient third quarter 2023 earnings release Theres also a full reconciliation of core earnings to GAAP and.
Included in the disclosure.
You and I will now turn the call over to David.
Great. Thanks, Jim Good morning, everyone. Thank you for joining the call and for your interest in Navient.
Our results for the quarter reflect our strong foundation of assets and capabilities.
As well as initial actions, we are taking to deliver more value to shareholders.
We achieved consistent net interest margins and credit performance.
<unk> generated strong revenue growth in traditional business processing services and lowered our operating expenses.
Last quarter I discussed the in depth and holistic review of our entire business I'm pleased to report.
That this important work is well underway and we're making substantial progress you'll.
Youll see some of the actions we've already taken reflected in our results this quarter.
Core earnings for the quarter were <unk> 47 per share excluding.
Excluding significant items core earnings were <unk> 84 per share.
We've taken a $45 million accrual or <unk> 28 per share in connection with the CFPB litigation.
We accrued for legal matters as required based on developments over the quarter.
We remain confident about the strength of our case at.
At the same time, we are open to finding a solution that is acceptable to all parties to put this matter behind us.
In addition, as part of our regular quarterly review of critical accounting assumptions, we updated certain accounting assumptions in the third quarter.
These updates slightly reduced our overall results.
Joe will highlight the impacts to individual line items in his remarks.
We remain focused on helping our borrowers who have federally owned student loans successfully navigate the resumption of payments, which includes helping them identify and access various repayment options.
While it's still early days, we have not yet seen significant changes to repayment patterns on loans, we hold.
Let me turn to our in depth review.
As I mentioned, while the bulk of the review work remains ongoing initially.
Initial insights led us to take some initial important actions.
For example, we've reduced a substantial capital investment we plan to make this year in school originations.
And we are evaluating ways to reduce capital intensity.
Generate higher returns in this activity.
I'll talk more about this action shortly.
The scope of the reviews are comprehensive and being conducted with an open mind and a critical eye.
There is no part of our business exempt from a hard look and a set of tough questions.
We're also evaluating opportunities to variable <unk> costs across several parts of our business, including within our loan servicing activities.
There are several cross functional teams across multiple work streams.
Each grounded in the ultimate goal of identifying and evaluating a range of alternatives to deliver greater value to our shareholders.
The executive team and I are managing the effort with regular and frequent updates and clear oversight from our board.
We're pleased with the progress we've made in identifying and evaluating alternatives and in certain instances beginning to take actions.
We look forward to continuing to provide updates as we move forward.
Let me now discuss loan originations and the actions I took.
We originated $204 million of in school loans during the quarter.
Bringing our year to date total to $292 million.
The year to date total is flat to last year.
This reflects actions we took to reduce loan acquisition spending.
The overall interest rate environment and changes in interest rates on federal student loans.
Our plans for the year had included an ambitious in school loan origination growth target.
That target required a substantial and long term commitment of capital for.
For loan acquisition costs to establish life of loan loss reserves.
And equity and unsecured debt capital.
I needed to be more confident that we can achieve our targeted returns before committing that capital.
As a result, I implemented a reduction in our Ensco acquisition spending during the third quarter.
We also adjusted our pricing in the marketplace during the third quarter to improve our margins.
These two steps, while remaining disciplined about maintaining high credit quality.
These actions impacted our volume.
Our in school origination volumes also reflect a changing mix between graduate and undergraduate students.
Our lending to undergraduate students grew 22% year to date.
Compared to the same period last year to.
$163 million.
At the same time, our graduate volume, which represents a higher percentage than the overall in school market was down.
There was a much smaller difference this year compared to last year and the rate of our federal graduate loan compared to our private loan.
Which was another contributing factor to our graduate volume being down.
We have confidence in our capabilities and in the opportunities in the in school market.
We're evaluating ways to enhance capital efficiency we.
We believe that we can grow steadily and sustainably with margins and credit quality that deliver appropriate returns.
Our refi originations during the quarter were $178 million.
Our year to date total to $456 million.
As we've discussed previously the addressable market and refi is driven primarily by interest rates.
While we experienced a modest increase in interest in refinancing from federal borrowers as the government payment resumption date approach, we continue to view the opportunity in refi originations to remain more limited than in prior years until rates declined significantly.
Our business processing solutions segment had a strong quarter.
Revenue from traditional services increased 33% year over year.
This segments growing organically with very low capital requirements the.
The trends, we're seeing in many of our target markets are encouraging and our pipeline of potential new business is promising.
And the health care space, we're seeing renewed post spend emmick interest by medical systems, and other health care providers.
Extend health care affiliate has strong credentials to navigate the increasing complexity of claims processing, while providing clients with lower costs and increased cash flows.
Within government services, we have grown by achieving a high percentage of contract renewals and winning new business and applying our capabilities to new types of clients.
Provide omnichannel contact centers that allow federal agencies states municipalities tolling and parking authorities to better serve their constituents and managed revenue streams.
To close out my remarks, we've achieved strong results this past quarter, while continuing to execute well against our plans for the year. We also have taken initial actions, resulting from the review of our businesses and we're making great progress on ways in which we can deliver more.
We look forward to providing a comprehensive update on our review as soon as possible.
I want to acknowledge and thank my colleagues across the organization, who make it possible to deliver these results while also focusing on ways to deliver greater value to shareholders.
With that I will turn it over to Joe for a review of this quarter's results and I look forward to your questions later in the call.
Thank you, Dave and thank you to everyone on today's call for your interest in adding.
During my prepared remarks, I will review the third quarter results for 2023 and provide updated guidance for the remainder of the year.
Key highlights from the quarter beginning on slide three.
Include third quarter, GAAP EPS of <unk> 65.
And core EPS of <unk> 47.
Which contains significant items that reduced earnings by $58 million.
We're 37 that I will discuss in greater detail as I review our segment results.
Felt NIM of 152 basis points.
Consumer lending NIM of 317 basis points.
Originations of $382 million.
Business processing revenues of $85 million with an EBITDA margin of 15% and.
And overall efficiency ratio of 49%.
We maintained an adjusted tangible equity ratio of eight 7%.
Returning $94 million to shareholders through dividends and repurchases.
I'll provide additional detail by segment, beginning with federal education loans on slide four.
As part of the quarterly review of our critical accounting assumptions, we updated our assumptions to reflect longer remaining life expectations on the portfolio.
The increase in expected remaining loan terms resulted in slower premium amortization and increase both the belt NIM and provision in the quarter.
The felt NIM of 152 basis points benefited from the revised estimate by $48 million or <unk> 45 basis points.
After adjusting for this our net interest margin was 107 basis points, which is in line with our expectations of 100 to 110 basis points for the full year.
Partially offsetting the benefit to NIM from the extension of the sub portfolio was an increase in provision of $36 million as a greater amount of loan premium will need to be charged off in the future.
Delinquencies declined to 16, 8% from 18, 6% with forbearance is flat year over year.
Net charge offs increased to 19 basis points and are consistent with our expectations of 10 to 20 basis points for the full year.
So, let's turn to our consumer lending segment on slide five.
We are seeing a slowdown in prepayment speeds in our private education refinance portfolio as borrowers with fixed interest rates have less of an incentive to refinance in the current higher rate environment.
The resulting increase in the expected life of loan and its impact on loan premium amortization benefited the consumer lending loan by $10 million.
Our 21 basis points in the quarter.
Adjusting for this benefit we saw net interest margin of 296 basis points, which is above our expectations of 280 to 290 basis points for the year.
Another significant item was a reduction in our expected recovery rate on previously charged off loans.
This reduction contributed to $29 million of the $36 million in total provision expenses for the quarter or.
Our credit performed as expected as charge off rates improved to 166% from two point or 1% from a year ago with stable late stage delinquencies and <unk>.
In the quarter, we originated $382 million of private.
Education loans.
This was comprised of $178 million of refinance loan origination volume and $204 million of new in school origination volume.
Our in school volume was driven in large part by the factors that Dave discussed.
<unk> on generating high quality loans at traditional four year not for profit institutions with efficient acquisition cost and targeted margins.
Turning to allowance for loan losses and related coverage on slide six we remain confident that we are adequately reserved for the expected life of loan losses, given the well seasoned and high credit quality of our portfolio.
At the end of the third quarter, our allowance for loan losses was just under $1 1 billion for our entire education loan portfolio.
While early indicators are positive we continue to remain cautious in our outlook as borrowers with over $1 five trillion in education loan balances that are not on our balance sheet, but held by the U S government and begun making payments on their federal loans.
And while the portfolio is primarily amortizing, we reserve $36 million for the salt loans related largely to a projected extension in the life of the portfolio.
From $36 million for private education loans of which $12 million is related to new origination volume and $29 million is related to the recovery adjustment I mentioned earlier in my remarks, which was partially offset by a $5 million release.
Continue to slide seven to review our business processing segment.
Total revenue increased $6 million to $85 million as revenue from our traditional bps services increased $21 million or 33%.
More than fully offsetting revenue associated with pandemic related contracts from a year ago.
Our EBIT margin was 15% in the quarter and has steadily increased since the beginning of the year as we benefit from ongoing efficiency initiatives and the Onboarding of new government services contracts.
Turning to our capital allocation and financing activity that is highlighted on slide eight.
We continue to maintain disciplined asset liability and capital management strategies with 84% of our education loan portfolio funded to Turner.
Our adjusted tangible equity ratio of eight 7% is in line with our targeted range of 8% to 9% and up from seven 8% a year ago.
In the quarter, we reduced our share count by 3% through the purchase of $4 2 million shares.
In total we returned $94 million to shareholders through share repurchases and dividends.
Let's turn to expenses on slide nine.
Our continued efforts to improve efficiency resulted in total expenses of $237 million, including a $45 million accrual related to developments in connection with the CFPB matter.
We remain focused on identifying additional ways to accelerated expense reduction.
Operating expenses declined 32% and the federal education segment and 8% in the corporate other segment when adjusted for the accrual as we continue to reduce costs associated with the amortization of our legacy portfolios.
Operator: At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. So withdraw your question, please press star 11 again.
The increase in <unk> expenses of $6 million.
It was related to higher revenues as EBITDA remained stable year over year.
We achieved an efficiency ratio of 49% in the quarter and are currently at 52% for the year better than our original full year guidance of $55 to 58%.
Operator: Please be advised that today's conference is being recorded.
Jen Earyes: I would now like to hand the conference over to your speaker today, Jen Earyes. Head of investor relations, please go ahead. Thank you, Abigail.
In closing the third quarter's results of <unk> 84 per share when taking into account the significant items I highlighted earlier in my remarks.
Jen Earyes: Hello, good morning and welcome to Navient's earnings call for the third quarter of 2023. With me today are Dave, Yoann, Navient CEO, and Joe Fisher, Navient CFO. After the prepared remarks, we're going to open the call-up questions. You can view and download presentation slides, including slides you may find useful during this call. Before we begin, keep in mind our discussion will contain predictions, expectations for looking statements and other information about our business that is based on management current expectations as of the date of this presentation.
Reflect the steps we have taken to efficient sufficiently.
Loan portfolio achieved profitable growth and maintained strong capital levels.
We're confident in our ability to deliver for the remainder of the year and are updating our full year core EPS guidance to a range of $2 92 to $3 <unk>, which includes the impact of the significant items highlighted in the quarter.
Before I close I would first like to thank the full team navient for their continued commitment to creating further value for all of our stakeholders. Thank you for your time and I'll now open the call for questions.
Jen Earyes: Actual results in the future may be materially different from those discussed here. This could be due to a variety of factors. Listeners should refer to the discussion of this factors on the company's form 10k and other filings with the SEC. During this conference call, we will refer to non-gap financial measures, including core earning, adjustable, tangible equity ratio, and other various non-gap financial measures that are derived from core earnings. Our gap results in description of our non-gap financial measures can be found in the third quarter of 2023 earnings release, which is posted on Navient.com slash investors.
Thank you at this time, we will conduct a question and answer session.
A reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
One moment for our first question.
Our first question comes from Sanjay Zaccone with VW. Your line is open.
Jen Earyes: You will find more information about these measures beginning on page 18 of Navient's third quarter 2023 earnings release. There's also a full reconciliation of core earnings to gap, included in the disclosure. Thank you, and I will now turn the call over today.
Banks.
Can we just dig a little bit more deeper into the review I know theres a lot of actions that have been taken but maybe you can just update us on sort of where we are and what else.
We expect.
Sure. Good morning, So as I've indicated this is a holistic and very in depth with you we've got.
Speaker: Great.
Speaker: Thanks, Jen.
David Yowan: Good morning, everyone. Thank you for joining me call and for your interest in Navient. Our results for the quarter reflect our strong foundation of assets and capabilities, as well as initial actions we are taking to deliver more value to shareholders. We achieved consistent net interest margins and credit performance generated strong revenue growth in traditional business processing services and lower operating expenses. Last quarter, I discussed the in-depth and holistic review of our entire business.
A number of.
Cross functional teams and a number of work streams that we have.
Organized ourselves around.
And where.
Sure.
Doing a.
Deep dive into our existing strategies processes and operations.
To better understand them not just as they exist today.
Over a longer term time time horizon.
David Yowan: I'm pleased to report that this important work is well underway and we're making substantial progress. You'll see some of the actions we've already taken reflected in our results this quarter. Core earnings for the quarter were $0.47 per share, excluding significant items core earnings were $0.84 per share. We've taken a $45 million a cruel or $0.28 per share in connection with the CFDB litigation. We accrued for legal matters as required based on developments over the quarter.
As we do that we're trying to identify ways in which we could.
Do things differently or do things do different things as I like to say that wood.
Improve our ability to deliver to shareholders.
We have today.
Announced a couple of things that.
Have come out with some initial actions that we've taken out of those reviews.
When I talk about the I am pleased with the substantial performance of progress we've had on these reviews.
David Yowan: We remain confident about the strength of our case. At the same time, we're open to finding a solution that's acceptable to all parties to put this matter behind us. In addition, as part of our regular quarterly review of critical accounting assumptions, we updated certain accounting assumptions in the third quarter. These updates slightly reduced our overall results. Joe will highlight the impacts to individual line items and his remarks. We remain focused on helping our borrowers who have federally owned student loans successfully navigate the resumption of payments, which includes helping them identify and access various repayment options. While it's still early days, we have not yet seen significant changes to repayment patterns on loans we hold.
That indicates that I think we've got some other things that we have not announced but we're looking at very carefully and very closely and as soon as we're able to share those with you we intend to do so.
Okay.
Great.
I have a question on the CFPB case.
What can we show.
From the.
The charge is that an offer.
Representation of tangible progress towards the resolution.
Yes.
Yes so.
As you can I'm sure I appreciate it.
Not going to discuss the specifics of the case or any other elements of that I would.
Repeat what we've said which is.
We're very confident in the strength of our case.
At the same time.
We're open to a out of court settlement, that's acceptable to all parties.
David Yowan: Let me turn to our in-depth review. As I mentioned, while the bulk of the review work remains ongoing, initial insights let us take some initial important actions. For example, we've reduced the substantial capital investment we have planned to make this year in school originations. And we're evaluating ways to reduce capital intensity and generate higher returns in this activity. I'll talk more about this action shortly. The scope of the reviews are comprehensive and being conducted with an open mind and a critical eye.
And the accruals that we made this quarter.
Reflects.
Elements to date.
<unk>.
<unk> matter.
We also expect to file our 10-Q.
Later today, Sanjay and then that 10-Q.
Under the contingency section Youll see the establishment of a reasonably possible loss related to this matter in a more robust discussion of the case and the uncertainties that surround.
David Yowan: There's no part of our business exempt from a hard luck and a set of tough questions. We're also evaluating opportunities to variable lives costs across several parts of our business, including within our loan servicing activities. There are several cross-functional teams across multiple work streams, each grounded in the ultimate goal of identifying and evaluating a range of alternatives to deliver greater value to our shareholders. The executive team and I are managing the effort with regular and frequent updates and clear oversight from our board. We're pleased with the progress we've made in identifying and evaluating alternatives and in certain instances beginning to take actions. We look forward to continuing to provide updates as we move forward.
The accrual on the reasonably possible loss the range on that reasonably possible loss.
Is the road to $250 million.
And I would encourage everyone to read that in the language surrounding it when we publish it carefully and I think that ill give you a better sense of where we are today in terms of the case.
Okay.
Can I just get one more question.
And then the two allotment, but on the in school origination slowdown.
Yes, a good run rate going forward, maybe you could just give us a sense of sort of how we should think about it and just the impact of higher pricing and backing away from the market.
What kind of impact does it have in your position in the market I'm just trying to think about because there's a lot of work to get into the in school channel I'm. Just wondering if you back away from it does that have an impact on you utilize it going forward.
David Yowan: Let me doubt now discuss loan originations and the actions I took. We originated 204 million of in-school loans during the quarter, bringing our year-to-date total to 292 million. The year-to-date total is flat to last year. This reflects actions we took to reduce loan acquisition spending, the overall interest rate environment, and changes in interest rates on federal student loans. Our plans for the year had included an ambitious in-school loan origination growth target.
Yes, so I would not characterize this as backing away from that I would characterize this as.
A pause in the substantial capital commitment that was associated with the plan for the year to double.
Origination volume.
Was not confident that.
David Yowan: That target required a substantial and long-term commitment of capital for loan acquisition costs, to establish life of loan loss reserves, and equity and unsearch debt capital. I needed to be more confident that we could achieve our targeted returns before committing that capital. As a result, I implemented a reduction in our in-school acquisition spending during the third quarter. We also adjusted our pricing in the marketplace during the third quarter to improve our margins.
Given the substantial amount of capital involved in this activity and I'm talking about loan acquisition costs.
Front provision for life of loan loss.
Looking at the margins we are regenerating.
Non of equity capital that we set against that the amount of unsecured debt capital that we need after we do ABS financing and so those amounts were substantial.
Given the long life of our student loan asset. It's also very long term commitment of capital and so I felt the right thing to do was to pause on that until we could I could make sure that the combination of those all of those different capital investments were going.
David Yowan: We took these two steps while remaining disciplined about maintaining high credit quality. These actions impacted our volume. Our in-school origination volumes also reflect a changing mix between graduate and undergraduate students. Our lending to undergraduate students grew 22% year today compared to the same period last year to 163 million. At the same time, our graduate volume, which represents a higher percentage than the overall in-school market, was down. There was a much smaller difference this year compared to last year in the rate of a federal graduate loan compared to a private loan, which was another contributing factor to our graduate volume being down.
Produce an appropriate return for our shareholders.
I think <unk> said in my remarks, I think we have.
A strong set of capabilities and I think there is an opportunity for us in this market you did see us grow under graduate volume by 22% year on year that was.
Key focus for us this year and so I think the team did a nice job of doing that there is some underlying metrics and signs our ability for example to be on preferred lender list set to colleges that we're targeting.
David Yowan: We have confidence in our capabilities and in the opportunities in the in-school market, who are evaluating ways to enhance capital efficiency. We believe that we can grow steadily and sustainably with margins and credit quality that deliver appropriate returns. Our refy origination during the quarter were 178 million, bringing our year-to-date total to 456 million. As we've discussed previously, the addressable market in refy is driven primarily by interest rates. While we experienced a modest increase in interest in refinancing from federal borrowers as the government payment resumption date approached, we continued to view the opportunity in refy originations to remain more limited than in prior years until rates decline significantly.
Increase.
Laying the foundation for being in the market and being.
Enable competitor in that market.
Would say that I think the strategy to grow in that market is one that is.
Steadier and more sustainable than the ambitious targets that we had this year.
Okay. Thank you very much.
You bet.
One moment for our next question.
Our next question comes from Rick Shane with Jpmorgan. Your line is open.
Thanks, everybody for taking my questions. This morning.
I think I'm too.
Trying to understand the implications of your response to <unk> question and also sort of the <unk>.
David Yowan: Our business processing solution segment had a strong quarter, revenue from traditional services increased 33% year-to-year, the segments growing organically with very low capital requirements. The trends we're seeing in many of our target markets are encouraging and are pipeline of potential new business promising. In the healthcare space, we're seeing renewed post-pandemic interest by medical systems and other healthcare providers. Our extend healthcare affiliate has strong credentials to navigate the increasing complexity of claims processing while providing clients with lower costs and increased cash flows.
Tactical approach to in school originations right now.
As you look forward based upon the strategic review.
One thing we can conclude is that you are moving more and more towards a capital light model.
But at the same time, when we think about the business and the comments you just made about bill.
Building the in school network and building the preferred lenders list.
Maybe there's a different way to interpret that.
Help us understand sort of what the vision is going to be D. C. Navient more and more capital lighter do you really want to ultimately grow that.
David Yowan: Within government services, we've grown by achieving a high percentage of contract renewals, winning new business, and applying our capabilities to new types of clients. We provide on-the-channel contact centers that allow federal agencies, states, municipalities, towing and parking authorities to better serve their constituents and manage revenue streams. To close out by remarks, we've achieved strong results with gas quarter. While continuing to execute well against our plans for the year, we also have taken initial actions resulting from the review of our businesses and we're making great progress on ways in which we can deliver more.
The private student lending business again.
Yes.
So thanks for your question.
I'm not sure those two things are mutually exclusive.
I'd go back to maybe.
A little more color on in scores, while I mentioned that in my remarks.
On the graduate.
Market there was a significant change in that.
The coupon associated with federal loans versus private loans this year compared to last year.
David Yowan: We look forward to providing a comprehensive update on our review as soon as possible.
So just given the way federal loans and I'm talking about Grad plus loans get priced those effectively increased year on year, roughly 50 basis points in rates.
David Yowan: I want to acknowledge and thank my colleagues across the organization to make it possible to deliver these results while also focusing on ways to deliver greater value to shareholders.
Private loans like ours increased close to 200 basis points, because theyre more market rate driven.
Joe Fisher: with that I will turn it over to Joe for review of this quarter's results and I look forward to your questions later in the call. Thank you Dave and thank you to everyone on today's call for your interest in that.
So if you just look at coupon not APR given the fee associated with Grad plus.
Most of this period the coupon on our private loan my cars in the graduate space.
Joe Fisher: During my prepare remarks I will review the third quarter results for 2023 and provide updated guidance for the remainder of the year. Key highlights from the quarter beginning on slide three include third quarter gap EPS of 65 cents and core EPS of 47 cents, which contains significant items that reduced earnings by 58 million dollars for 37 cents that I will discuss in greater detail as I review our second results. Felt name of 152 basis points, consumer lending in of 317 basis points, originations of 382 million dollars, business processing revenues of 85 million dollars within even a margin of 15% and overall efficiency ratio of 49%.
Was.
Lower than a federal alone last year.
So it is higher this year. So when you look at our origination volume, we did pull back on loan acquisition spending.
Certainly impacted our volume, but if you look at our mix of graduate and undergraduate we're much more weighted towards graduate volume than the overall market.
The rate environment played a role in our graduate volume, which is down 15%, 16% compared to last year. So part of that is my reason for my confidence of our ability to operate in the market as we had.
Rate differential this year that made it much more challenging.
In the graduate market and so I don't want to lose sight of that I don't want you to lose sight of that when you look at our volume and you think about.
Joe Fisher: Maintained an adjusted tangible equity ratio of 8.7% while returning 94 million dollars to shareholders to dividends and purchases. I'll provide additional detail by segment beginning with federal education loans on slide four. As part of the quarterly review of our critical accounting assumptions we updated our assumptions to reflect longer remaining life expectations on the portfolio. The increase in expected remaining loan terms resulted in slow premium amortization and increased both the Felt name and provision in the quarter.
Our strategy going forward.
We do need to we are looking for ways to reduce the capital intensity of this activity we have.
We have a cost of capital we need to earn returns in excess of that to deliver value to our shareholders. There's a variety of levers that we can pull if you talk about the drivers of.
The returns in this business, we do have.
Joe Fisher: The Felt name of 152 basis points benefited from the revised estimate by 48 million dollars or 45 basis points. After adjusting for this, our net interest margin was 107 basis points, which has been lined with our expectations of 100 to 110 basis points for the whole year. Partially offsetting the benefit from the extension of the self portfolio was an increase in provision of 36 million dollars as a greater amount of loan premium will need to be charged off in the future.
Our long term plans.
Become more efficient in our loan acquisition expense.
Our realization is a big part of that looking at ways, how can we accelerate our efforts to be more efficient in terms of acquiring.
Provision expense is a function of our credit quality, we need to make sure that we're really disciplined about that and have the right.
Set against that and I'm confident that we're doing that so we have to keep doing that.
On the <unk> side.
We increased our margin this year compared to last year and in school by a little less than 100 basis points. I think we still have some room to further improve that but one of the ways you reduce capital intensity is to increase the amount of capital you can generate from it add to that and so we're trying to make sure we're doing that as well.
Joe Fisher: The linkancies declined to 16.8% from 18.6% with four barrens in flat year over year. Net charge offs increased to 19 basis points and are consistent with our expectations of 10 to 20 basis points for the full year.
Joe Fisher: So let's turn to our consumer lending segment on slide five. We are seeing a slowdown of prepayment speeds in our private education, we finance portfolio as borrowers with fixed interest rates have less of an incentive to refinance in the current prior rate environment. The resulting increase in the expected life of loan and its impact on loan premium amortization benefited the consumer lending name by 10 million dollars for 21 basis points in the quarter.
And then we.
We are open to and we talked about this I think a little bit on the last call we have the flexibility.
Hold assets rehab taxability as others in the industry due to sell assets from time to time and so if there are cheaper sources of capital to own the principle of these loans.
We're certainly open to that.
Joe Fisher: Adjusting for this benefit, we saw net interest margin of 296 basis points, which is above our expectations of 280 to 290 basis points for the year. Another significant item was a reduction in our expected recovery rate on previously charged off loans. This reduction contributed to $29 million for the $36 million in total provision expenses for the quarter. Our credit performed as expected as charge-off rates improved to 1.66% from 2.01% from a year ago with stable, late-stage philanthropies and advancements.
Are trying to make.
The enterprise as you indicate there.
Less capital intensive we think thats.
Absolutely something that we're going to look at very long and hard and find ways to do that.
Got it that's very helpful. It helps us understand sort of the palette of.
Iterations, then you are looking at and I appreciate.
There can be.
We may have to hold two or three thoughts in our head at one time, it's a little harder at $5 30 in the morning, but I do appreciate it.
Okay.
Joe Fisher: In the quarter, we originated $382 million of private education loans. This was comprised of $178 million of refinanced loan origination volume and $204 million of new in-school origination volume. Our in-school volume was driven in large parts by the factors that they have discussed. Our focus on generating high quality loans at traditional four-year, not-for-profit institution, with efficient acquisition costs and targeted margins. Turning to allowance to loan losses and related coverage on slide six, we remained confident that we are adequately reserved for the expected life of loan losses given the well-seasoned and high-credit quality of our portfolio.
One moment for our next question.
Our next question comes from Bill Ryan with Seaport Research Partners. Your line is open.
Thanks, and good morning. So first question I wanted to take a step back to September.
And there are some initial indications that there may have been some pickup in federal student loan felt portfolio refi activity because I believe that you had to consolidate under the direct loan program to qualify for <unk> towards the post RDR guidelines.
Obviously with what you did accounting wise this quarter it looks like you to think that.
Joe Fisher: At the end of the third quarter, our allowance to loan losses was just under $1.1 billion for our entire education loan portfolio. While fairly indicators are positive, we continue to remain cautious in our outlook as borrowers that are the $1.5 trillion in education loan balances that are not on our balance sheet but held by the U.S, government have begun making payments on the federal loans. And while the portfolio is primarily advertising, we reserve $36 million for the felt loans related largely to a projected extension in the lives of the portfolio and $36 million for private education loans of which 12 million is related to new origination volume and $29 million is related to the recovery adjustment I mentioned earlier in my remarks, which was partially offset by a $5 million release.
It really became a non event and I'm kind of curious whats changed in that initially there may have been some concern and thats obviously dissipated.
And part of that is does that also mean that private activity that youre really not seeing a big uptick in application flow there for refinance either.
And so I would ask.
Our answer the second part first so on the refi we are seeing just a small tick up which you can see from last quarter to this quarter. So thats, primarily driven from borrowers coming from the direct loan program that otherwise.
Refinancing before.
The first part of your question I would say over the last year.
We obviously saw slower prepayments than we have had in the past two years and more on a normalized or below normalized levels.
Joe Fisher: Continue to slide seven to review our business processing segment. Total revenue increased $6 million to $85 million as revenue from our traditional BPS services increased $21 million or 33 percent more than fully offsetting revenue associated with pandemic-related contracts from a year ago. Our EBIT margin was 15 percent in the quarter and has steadily increased since the beginning of the year as we benefit from ongoing efficiency initiatives in the onboarding of new government services contracts.
That has led to in terms of what we're witnessing in the portfolio a view that there is an extension of the portfolio that combined with an increase in the Stafford rates to the borrower without necessarily an increase to what they are paying because keep in mind. The Stafford loans, we set every.
Year, but if they are in payment plans, where that is a steady payment that just naturally increase the term. So all of these indicators are pointing to an extension of the portfolio.
Joe Fisher: Turn to our capital allocation and financing activity that is highlighted on slide 8. We continue to maintain discipline, asset liability and capital management strategies with 84 percent of our education loan portfolio funded to turn. Our adjusted tangible equity ratio of 8.7 percent is in line with our target range of 8 to 9 percent and up from 7.8 percent a year ago. In the quarter, we reduced our share count by 3 percent through the purchase of 4.2 million shares. In total, we return $94 million to shareholders from sharey purchases and dividends.
Never in saying that there are a number of opportunities in place today for borrowers to consolidate to the direct loan program and if you are a distressed borrower or someone who is struggling to make a payment you should be looking at those programs hard and you should be taking advantage of those and they're contacting us or picking up.
When we call you with these solutions so I still encourage those borrowers to look at those solutions and what makes sense for them, but at this point, we're just not seeing it in the activity in our portfolio.
Okay. Thanks for the color on that and just one follow up and I'm.
Joe Fisher: Turn to expenses on slide 9. Our continued efforts to improve efficiency resulted in total expenses of $237 million, including a $45 million cool related to developments in connection with the CFPB matter. We remain focused on identifying additional ways to accelerate expense reduction. Operating expenses to climb 32% in the federal education segment and 8% in the corporate other segment in adjusting for the approval as we continue to reduce costs associated with the amortization of our legacy portfolios.
Just kind of throw it out there.
Your discussion of the installed channel, you're obviously still very committed to it.
In the long term you talked about the capital intensity and other things.
There's been some discussion that one of your competitors may be looking to dispose of their business are looking for strategic alternatives.
It seems like that could alleviate a lot of the pressures I mean, it overcomes the seasonal growth issue.
Theres ways, it could be structured etcetera etcetera.
Is that something that you might consider as an opportunity if it such.
Joe Fisher: The increase in DPS expenses and $6 million was related to higher revenues as EBITDA remains stable year-to-year. We achieved an efficiency ratio of 49% in the quarter and are currently at 52% for the year, better than our original four-year guidance of 55-58%.
This is what becomes available.
Yeah, Hey, Bill Good morning, I. Appreciate the question, we're very focused right now on.
Our in depth reviews.
And.
I Wouldnt comp.
Joe Fisher: Recallosing, the third quarter's results of 84 cents per share in taking them to account the significant items I highlighted earlier in my remarks reflect the steps we have taken to efficiently learn portfolio, achieve profitable growth, and maintain strong capital levels. We're confident in our ability to deliver for the remainder of the year and are updating our four-year core EPS guidance to range at $2.92, the $3.02, which includes the impact of the significant items highlighted in the quarter.
Comment on what other competitors are done at this point.
Okay. Thank you.
Okay.
Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.
One moment for our next question.
Our next question comes from Erin Zyuganov Itch with Citi. Your line is open.
Thanks.
So maybe Joe you could talk about.
Joe Fisher: Before I close, I would first like to thank the full team member for their continued commitment to create further value for all of our speakers.
The extension of.
The loan portfolios and how thats impacting the net interest margins I see that there is the big catch ups. This quarter. It seems like things are moving kind of in line how does it set it up for.
Operator: Thank you for your time, and I will now open the call for questions. Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for our first question.
2024.
Think about rolling into next year.
Yes, so what I tried to do in my remarks is just removed.
The significant items in terms of the adjustments that took place here. So give you a clearer look of what occurred in the quarter absent of those and Thats. While we recorded felt NIM of 150 to 45 basis points was related to that extension. So that 107 is right in our range of 100 to 110 basis points and then.
Sanjay Sakhrani: Our first question comes from Sanjay Sakharani with KBW. Your line is open. Thanks. Can we just dig a little bit more deeper into the review? I know there's a lot of actions that have been taken, but maybe you can just update us on where we are and what else we can expect.
Similarly with.
Private portfolio, while we reported $3 17, adjusting for that item or closer to 296, so above our guidance. So.
David Yowan: Sure. Good morning. As I've indicated, this is a holistic and very in-depth review. We've got a number of cross-functional teams and a number of workstreams that we have organized ourselves around, and we're doing a deep dive into our existing strategies, processes and operations to better understand them, not just as they exist today, but over a longer-term time horizon. As we do that, we're trying to identify ways in which we could do things differently, or do different things, as I like to say, that would improve our ability to deliver to shareholders.
There are a lot of moving pieces here in terms of interest rate environment as borrower activity with various programs that are in place, but I would say at least as we look in the near term in the way that the curve is shaped that we're comfortable with the ranges that we've given and what we're seeing I would say.
While the curve is somewhat downward sloping at this point could put some pressure on the saltman.
Slight positive for the private portfolio somewhat of an offset there.
Okay got it.
And David I guess.
On the slowing of the in school origination.
A little bit.
Doug.
The.
Youre talking about.
Doubling of last year's originations, which was really not that much couple of hundred million dollars relative to the market size of your competitors, who do billions of dollars.
<unk>.
David Yowan: We have today announced a couple things that have come out to some initial actions that we've taken out of those reviews. When I talk about the, I'm pleased with this financial performance or progress we've had on these reviews, that indicates that I think we've got some other things that we've not announced, but we're looking at very carefully and very closely, and as soon as we're able to share those with you, we intend to do so. Okay. Great.
The idea of it being too capital intensive.
It just seems.
At least at odds with what we see in the marketplace.
Don't know if its just a matter of Youre just starting from such a slow level. If you have other items that you need capital for in the near term.
Yes.
It doesn't really.
Well I think at least from our standpoint.
Well I guess.
I do view it.
Sanjay Sakhrani: I have a question on the CFPB case. I mean, what can we infer from the charge is that an offer or is that representation of tangible progress towards the resolution? Yes, so as you can, I'm sure, appreciate.
As capital intensive it's certainly relative to other for example to other consumer assets Karen just given the.
Cost of origination I think you have some visibility into the <unk>.
Life of loan loss reserve all those those two things.
David Yowan: I'm not going to discuss the specifics of the case or any other elements of it. But I would repeat what we've said, which is we're very confident in the strength of our case at the same time. We're open to a out of court settlement that's acceptable to all parties. And the accrual that we made, this quarter, reflects the developments to date in that matter. You know, we also expect to file our 10-2 later today, Sanjay.
<unk> equity capital.
And we're trying to be good stewards of that capital and make sure that when we commit significant amounts to it we're earning returns on that.
We had a 10% equity weighed against.
SLO loans.
The advance rate on the securitization of SLO loans, plus the equity we put against it doesn't fully financed alone.
NAFTA issue.
On secured debt in order to finance that.
Those are the things as particularly given perhaps nine.
Background as the balance sheet manager those are.
David Yowan: And in that 10-2, under the contingency section, you'll see the establishment of a reasonably possible loss related to this matter and a more robust discussion of the case and the uncertainties that surround the accrual and the reasonably possible loss. The range on that reasonably possible loss is zero to $250 million. And I would encourage everyone to read that and the language surrounding it when we publish it carefully. And I think that'll give you a better sense of where we are today in terms of the case.
Capital intensive on a unit basis, we're not <unk>.
Capital constrained, it's not that we didn't have the capital I didn't want to commit.
That substantial amount of capital over a long period of time until I was more confident that we were going to earn the returns that I think our shareholders expect from us.
Okay.
Yes, I mean I appreciate that it is a more capital intensive.
Okay.
Product and then they are longer duration, but I would just say that youre either in the business you are not in the business and pull.
Sanjay Sakhrani: If you don't mind, I just get one more question. I know it's more than the two, a lot of men.
Go back to that kind of level of lease firm.
Prior expectations it seems.
David Yowan: But on the in-school origination slowdown, is this a good run rate going forward? Maybe you can just give us a sense of how we should think about it and just this impact of higher pricing and backing away from the market. What kind of impact does it have in your position in the market? You know, I'm just trying to think about it because there's a lot of work to get into the in-school channel. I'm just wondering if you back away from it, does that have an impact on you utilizing it going forward?
Looking a little at odds.
Yes.
We are to be clear we are in this.
Okay. Thanks.
Yes.
One moment for our next question.
Our next question comes from Jeff Adelson with Morgan Stanley. Your line is open.
David Yowan: Yeah, so I would not characterize this as backing away from it. I would characterize this as a pause in the substantial capital commitment that was associated with the plan for the year to double origination volume. I was not confident that given the substantial amount of capital involved in this activity, and I'm talking about loan acquisition costs, upfront provision for life of loan loss, looking at the margins we were generating. The amount of equity capital that we set against that amount of unskilled debt capital that we need after we do ABS financing. And so those amounts were substantial. Given the long life of a student loan asset, it's also a very long term commitment of capital.
Hey, good morning, Thanks for taking my questions.
Just in terms of the just to revisit the CFPB matter.
David Yowan: And so I felt the right thing to do was to pause on that until we could, I could make sure that the combination of those, all those different capital investments were going to produce an appropriate return for our shareholders. I think and said in my remarks, I think we have a strong set of capabilities and I think there is an opportunity for us in this market. You did see us grow under graduate volume by 22 percent year on year.
I guess.
The question I have is and I know, we're going to get some more detail in the Q later today, but why establish the reasonably loss estimate now.
Was there a shift in the conversation.
Are you getting.
Is there anything happening in ongoing dialogue with the CFPB or is this more like a result.
Ongoing review you've been doing across the business.
Thanks for the question Jeff.
We said that the.
Accrual and the establishment of the reasonably possible loss that youll see in our Q.
Based on developments in the matter.
Since we last reported through to today and I think I'll just leave it at that and I encourage you to read the Q and that May provide a little more elimination.
Sure.
Okay, well look out for that.
Just on your prepay speed assumptions.
I think maybe you were a little surprised that there haven't been more folks taking advantage of the opportunity to consolidate until the government loans against the idea of our benefit.
Is there any reason why.
Some of your long dated borrowers.
David Yowan: That was a key focus for us this year and so I think the team did a nice job of doing that. There's some underlying metrics and signs, our ability for example to be on preferred lender lists at the colleges that we're targeting also in Greece. We're laying the foundation for being in the market and being a enable competitor in that market.
Can be consolidating over.
Is it just based on their incomes are too high.
Maybe just help us understand I think last quarter, you mentioned, Mike happier lines or in an idea our plan already.
Yeah.
So.
It's a good question and I think that we all going back a year.
David Yowan: I would say that I think the strategy to grow in that market is one that is steady and more sustainable than the ambitious target that we have this year.
Probably would have expected to see even higher consolidation volume at that time, given the opportunities potentially for loan forgiveness. So I'll just try to set a basis of thinking about the <unk> portfolio, where these are very well seasoned borrowers at this point in time, the last loans that we originated and held on balance sheet.
Sanjay Sakhrani: Okay, thank you very much. Get that.
Operator: One moment for our next question.
And in 2008. So you are talking about 15 years, where there have been a substantial amount of programs and opportunities to consolidate over time.
Rick Shane: Our next question comes from Rick Shane with JP Morgan. Your line is open. Thanks everybody for taking my questions this morning. I think I'm trying to understand and the implications of your response to Sanjay's question and also sort of the tactical approach to in-school originations right now. As you look forward based upon the strategic review, one thing we can conclude is that you are moving more and more towards a capital-like model, but at the same time when we think about the business and the comments you just made about building the in-school network and building the preferred lender's list, maybe there's a different way to interpret that.
With various benefits that for whatever reason borrowers have not taken advantage of so as I said earlier I would encourage those borrowers that are struggling to make payments, where there is an opportunity for them in the direct loan program that isn't necessarily there in the cell program that basically taking advantage of that but today.
We just haven't seen that over the course of the year and looking at the portfolio. It does naturally extending we thought it was appropriate.
To take those adjustments this quarter.
And then maybe just the last one question is the July change in the <unk> plan is out of date youre watching at all or just based on the activity Youre seeing you don't think there'll be any kind of shift.
Based on the early activity there hasnt been much of an impact. So we will continue to monitor it and it's something again, just encourage borrowers to take advantage of it if it makes sense for them.
David Yowan: Help us understand sort of what the vision's going to be. Do you see Naviant more and more capital-liter? Do you really want to ultimately grow that private student lending business again? Yeah, thanks for the question Rick. I'm not sure those two things are mutually exclusive. I go back to maybe a little more color on in school as well. I mentioned it in my remarks, but on the graduate market, there was a significant change in the coupons associated with federal loans versus private loans this year compared to last year.
Okay, great. Thank you.
Thank you that concludes the question and answer session. At this time I would like to turn the call back to Evan areas for closing remarks.
Thanks, Rob Mcgill wed like to thank everyone for joining us on today's call. Please contact me if you have any other follow up question.
David Yowan: So just given the way federal loans and I'm talking about grad plus loans get priced, those affected an increased year-on-year roughly 50 basis points in rates, private loans like ours increase close to 200 basis points because they're more market rate-driven. So if you just look at coupon, not APR, given the CSUSU with grad plus, for most of this period, the coupon on a private loan like ours in the graduate space. DeVries was lower than a federal loan last year, but it's higher this year.
This concludes today's call.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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David Yowan: So when you look at our origination volume, we did pull back on loan acquisition spending that certainly impacted our volume. But if you look at our mix of graduate and undergraduate, we're much more weighted towards graduate volume than the overall market. And that rate environment played a role in our graduate volume, which is down 15, 16% compared to last year. So part of that is my reason for my confidence of our ability to operate in the market is we had a rate differential this year that made it much more challenging in the graduate market.
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David Yowan: And so I don't want to lose sight of that. I don't want you to lose sight of that when you look at our volume and you think about our strategy going forward. We do need to, we are looking for ways to reduce the capital intensity of this activity. We have a, you know, we have a cost of capital. We need to earn returns and access to that, deliver value to our shareholders.
David Yowan: There's a variety of levers that we can pull. If you talk about the drivers of the returns in this business, we do have long term plans to become more efficient in our loan acquisition expense. Serialization is a big part of that. Looking at ways, how can we accelerate our efforts to be more efficient in terms of acquiring the provision expense as a function of our credit quality? We need to make sure that we're really disciplined about that and have the right reserve set against that.
David Yowan: And I'm confident that we're doing that sort of to keep doing that. You know, on the margin side, we increased our margin this year compared to last year and in school by a little less than a hundred basis points. I think we still have some room to further improve that. But one of the ways you reduce capital intensity is to increase the amount of capital you can generate from an activity and so we're trying to make sure we're doing that as well.
David Yowan: And then, you know, we are open to and we talked about this, I think, a little bit on the last call. You know, we have the flexibility to hold assets, we have the flexibility as others in the industry do sell assets from time to time. And so if there are cheaper sources of capital to own the principle of these loans, you know, we're certainly open to that and are trying to make the enterprise as you indicate with last capital intensity.
David Yowan: We think that's absolutely something that we're going to look at very long and hard and find ways to do that. Got it. That's very helpful. It helps us understand sort of the palette of considerations that you're looking at. And I appreciate there can be, you know, we may have to hold two or three thoughts in our head at one time. It's a little harder at 5.30 in the morning, but I do appreciate it. Thank you.
David Yowan: One moment for our next question.
Bill Ryan: Our next question comes from Bill Ryan with Seaport Research Partners. Your line is open. Thanks, and good morning.
Bill Ryan: So, our first question I want to take a step back to September. And there are some initial indications that there may have been some pick-up in federal student loan, you know, fell portfolio refi activity because I believe that you had to consolidate under the direct loan program to qualify for IDR or the proposed IDR guidelines. Obviously, with what you did accounting whites is quarter, it looks like you think that it really became a non-advent.
Bill Ryan: And I'm kind of curious what kind of change in that because initially there may have been some concern and that's obviously dissipated. And part of that is does that also mean, you know, the private activity that you're really not seeing a big uptick in application flow there for refinance either? So, I would ask that or answer the second part first. So, on the V5 we are seeing just a small pickup which you can see from last quarter to this quarter.
Bill Ryan: So, that's primarily driven from borrowers coming from the direct loan program that otherwise, we can add things before. So, first part of your question, I would say over the last year, we obviously saw slower prepayments than we have had in the past two years and more on the normalized or below normalized levels. That has led to in terms of what we're witnessing in the portfolio of you that there's an extension of the portfolio that combined with an increase in the Stafford rates to the borrower without necessarily an increase to what they are paying because, keep in mind, the Stafford loans we set every year, but if they are in payment plans where that is a steady payment, that just naturally increases the term.
Bill Ryan: So, all of these indicators are pointing to an extension of the portfolio. However, in saying that, there are a number of opportunities in place today for borrowers to consolidate to the direct loan program. And if you are a distressed borrower or someone who is struggling to make a payment, you should be looking at those programs hard and you should be taking advantage of those and be there contacting us for picking up a phone when we call you with these solutions.
Bill Ryan: So, I still encourage those borrowers to look at those solutions and what makes sense for them. But at this point, we're just not seeing it in the activity in our portfolio. Okay. Thanks for the color on that.
Bill Ryan: And just one follow-up, and I'm just going to throw it out there. Your discussion of the in-school channel, you're obviously still very committed to it. In the long term, you talked about the capital intensity and other things.
Bill Ryan: There's been some discussion that one of your competitors may be looking to dispose of their business or looking for strategic alternatives. It seems like that could alleviate a lot of the pressures. I mean, it overcomes the seasonal growth issue. There's ways it could be structured, et cetera, et cetera.
David Yowan: Is that something that you might consider as an opportunity if it such a business becomes available? Thanks.
David Yowan: Yeah, hey Bill, good morning. I appreciate the question. We're very focused right now on our in-depth reviews. And you know, I wouldn't comment on what other competitors are doing this long.
Bill Ryan: Okay, thank you. That. Thank you.
Operator: As a reminder to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. One moment for our next question.
Arren Cyganovich: Our next question comes from Arren Cyganovich with City. Your line is open. Thanks. So maybe Joe, you can talk about the extension of the loan portfolios and how that's impacting that interest margins. I see that there's the big catch ups this quarter. Seems like things are moving kind of in line. How did that set it up for 2024, as we think about it, how rolling into next year? So what I tried to do in my remarks is just remove the significant items in terms of the adjustments that took place here.
Arren Cyganovich: So give you a clearer look of what occurred in the quarter, absent of those. And that's, while we reported, felt minimum 152, 45 basis points were related to that extension. So that 107 is right in our range of 100 to 110 basis points. And then similarly with the private portfolio, while we reported 317, just in for that item, we're closer to 2.96. So above our guidance. So a lot of moving pieces here in terms of interest rate environment, just borrow or activity with various programs that are in place.
Arren Cyganovich: But I would say at least as we look in the near-term and the way that the curve is shaped, that we're comfortable with the ranges that we've given and what we're seeing. I would say while the curve is somewhat downward slope at this point, could put some pressure on the self-min, that the flight positive for the private portfolio, so someone would have been all set there.
Joe Fisher: Okay, got it. In David, I guess, on the slug of the in-school origination, I'm a little bit confused, right? You're talking about, you know, doubling of last year's originations, which was really not that much, a couple hundred million, I mean, relative to the market times, you have competitors who do billions of dollars, and the idea of it being too capital intensive just seems, you know, at least at odds, with what we see in the marketplace.
Joe Fisher: And I don't know if it's just a matter of you're just starting from such a slow level. If you have other items that you need capital for in the near-term, it just, it doesn't really, you know, hit well, I think, at least from our standpoint. Well, I guess, I do view it as capital intensive, certainly relative to other, for example, to other consumer assets, Aaron, just given the Cost of origination, I think you have some visibility into the life of loan loss, reserve all those two things, consume equity capital, and we're trying to be good stewards of that capital and make sure that when we commit significant amounts to it, we're earning the right returns on that.
Joe Fisher: We have a 10% equity weight against SLO loans, the advanced rate on the securitizations of SLO loans, plus the equity we put against it doesn't fully finance the loans and we have an issue on secure debt in order to finance that. Those of the things is particularly given perhaps my background as a balance sheet manager, those are capital intensive on a unit basis, we're not capital constrained, it's not that we didn't have the capital, I didn't want to commit that substantial amount of capital over a long period of time until I was more confident that we were going to earn the returns that I think our shareholders expect from us.
Joe Fisher: Yeah, I appreciate that it is a more capital intensive product and they are longer duration, but I would just say that you're either in the business, you're not in the business, and to pull back to that level, at least for prior expectations, it seems a little little at odds. We are to be clear, we are in this.
David Yowan: One moment for our next question.
Jeffrey Adelson: Our next question comes from Jess Adelson with Morgan Stanley, your line is open. Hey, good morning, thanks for taking my questions. Just in terms of the, just to revisit the CFPB matter, I guess the question I have is, and I know we're going to get some more detail in the queue later today, but why establish the reasonably lost estimate now? Was there a shift in the conversation? Is there anything happening in the ongoing dialogue with the CFPB, or is this more like a result of the ongoing review you've been doing across the business?
Jeffrey Adelson: I hope I have things in question, Jess. We said that the a cool and the establishment of the reasonably possible loss that you'll see in our queue are based on developments in the matter since we last reported through to today, and I think I'll just leave it at that and I encourage it to read the queue and that may provide a little more illumination to it. Okay, we'll look out for that, and just on your pre-pay speed assumptions, I think maybe we're a little surprised that there haven't been more folks taking advantage of the opportunity you consolidate into the government loan to get the IDR benefit.
Jeffrey Adelson: Is there any reason why DeVries. Some of your elongated, borrowers wouldn't be consolidating over. Is it just they don't, you know, their incomes are too high, maybe just help us understand it. I think last quarter, you mentioned like happier loans or an IDR plan already. Yeah, so it's a good question. And I think that we all going back the year probably would have expected to see even higher consolidation volume at that time given the opportunities potentially for loan forgiveness.
Jeffrey Adelson: So I'll just try to say that a base is thinking about the felt portfolio where these are very well seasoned borrowers at the point in time. The last loans that we originated and held on balance sheet began in 2008. So you're talking about 15 years where there have been substantial amount of programs and opportunities to consolidate over time with various benefits that will whatever reason borrowers have not taken advantage of. But so as I said earlier, I would encourage those borrowers that are struggling to make payments where there is an opportunity for them in the direct loan program that isn't necessarily there in the cell program that they should be taking advantage of that.
Jeffrey Adelson: But today, if we just haven't seen it over the course of the year and looking at the portfolio is naturally extending, we thought it was appropriate to take those adjustments this quarter. And it is maybe just the last one question. Is the July change in the safe plan? Is that a date you're watching at all or just based on the activity you're seeing you don't think there will be any kind of shift.
Jeffrey Adelson: Based on the early activity, there hasn't been much of an impact. So we'll continue to monitor it and do something again, just encourage borrowers to take advantage of it if it makes sense for them. Okay. Great. Thank you.
Operator: That concludes the question and answer session.
Jen Earyes: At this time, I would like to turn the call back to some areas for closing remarks. Thanks Abigail. We'd like to thank everyone for joining us on today's call.
Jen Earyes: Please contact me if you have any other follow up question. This concludes today's call. Thank you for your participation and today's conference. This does conclude the program.
Operator: You may now disconnect.
Operator: Thank you.